IRS Audit Finds 1 in 4 Error Rate in Scanned Taxpayer Correspondence

    An audit by the Office of the Inspector General (OIG) released on October 24 found that while the IRS has improved the timeliness of scanning taxpayer correspondence into its Correspondence Imaging System (CIS) since an audit six years ago, the accuracy rate has apparently declined during that same time period.  The declining accuracy rate occurred even as the volume of paper correspondence fell nearly 20% from 10 million documents annually to about 8.1 million.  While the 2007 audit found database input errors in 18 percent of cases sampled, the 2013 rate was closer to 1 in 4 (24 percent.)
    From the report:

In its new audit, TIGTA found that the IRS has taken corrective actions to address the timeliness of scanning correspondence concerns that were raised in the prior audit report. However, the TIGTA found there is still inaccurate and incomplete data in the CIS. TIGTA compared 118 paper documents received from taxpayers to the images scanned into the CIS and found that 28 (24 percent) had one or more scan errors and documents scanned into the CIS are often incomplete, illegible, or inaccurate.

     The relatively small sample did not allow the OIG to project the 24 percent rate onto the entire CIS inventory, but Inspector General J. Russell George, who rose to prominence this summer during Congressional hearings on IRS treatment of non-profits applying for tax exempt status, found the results disturbing nonetheless:

“The continued problems in this area are troubling,” said J. Russell George, the Treasury Inspector General for Tax Administration. “Miscoded or illegible scanned documents can result in taxpayers being asked multiple times to provide the same information, delay the issuance of refunds, change the order in which cases are worked, or result in the incorrect calculation of interest owed to taxpayers.”

   The report also found that more than half of open cases in the CIS inventory involve correspondence from taxpayers regarding identity theft.  Since identity theft cases are not always properly linked to existing cases in the CIS, the result is "multiple cases and different IRS employees working with the same taxpayers and taking conflicting actions to resolve the taxpayer’s case."  The audit found that as many as 46,000 taxpayers could have multiple case files that are not linked in the IRS's system.
    The IRS agreed to take steps to correct the findings in the audit report.


Note: A version of this article first appeared at The Weekly Standard.

Audit Finds Maryland Overcharged Federal Government in 95% of Cases in Waiver Program

    A Social Security program administered by the Centers for Medicare & Medicaid Services (CMS) allows states to apply for waivers for longterm care of individuals with developmental disabilities in home and community settings instead of institutions.  For the three years ending June 2012, the State of Maryland claimed $648.6 million from the federal government under its Community Pathways waiver program.
    An audit by the Office of the Inspector General (OIG) of the Department of Health and Human Services (HHS) found that errors in paperwork filed by the state resulted in overcharges to the federal government in excess of $20 million.  But even more startling than the dollar amount is the 95% error rate uncovered by the audit.  The OIG explains in the Findings section of the report [emphasis added]:

The State agency did not comply with Federal and State requirements when it claimed costs for residential habilitation services under the waiver.  Of the 100 claim lines that we sampled, 5 complied with Federal and State requirements; however, 95 did not.  The 95 claim lines had 135 errors:  

• For 81 claim lines, the State agency included unallowable costs for room and board.    
• For 54 claim lines, the State agency reduced provider payments to reflect amounts in excess of room and board that providers had collected from beneficiaries but did not reduce claims for Federal reimbursement accordingly.   

Forty claim lines included both errors.We estimate that, as a result of these errors, the State agency claimed at least $20,627,705 (Federal share) in unallowable costs.
The State agency claimed these unallowable costs because it lacked internal controls to ensure that unallowable costs were not included in claims for provider per diem payments.  

    In response, the State of Maryland agreed with the finding of the audit, including the recommendation to reimburse the federal government for the $20 million overcharge.  The state agency responsible also noted steps being taken to prevent a reoccurrence of the errors.
    As the Affordable Care Act begins to take full effect in 2014, Maryland is one of the states participating in the Medicaid expansion that is part of the law.  State agencies will have an expanding workload as the Medicaid expansion kicks in, increasing the need for safeguards to be sure that the states are in compliance with reimbursement guidelines.

Audit: Some IRS Employees Still Using Outlawed ‘Illegal Tax Protester’ Designation

    Despite a law passed 15 years ago, some Internal Revenue Service employees continue to use the designation "Illegal Tax Protester" and other similar designations in case narratives according to an audit just released by TIGTA (Treasury Inspector General for Tax Administration.)  While the IRS has not reintroduced an actual code for such designations, the audit found out of 257 million records, there were

54 instances in which Enforcement and Deputy Commissioner for 45 employees referred to taxpayers as  Operations Support.  “Tax Protester,” “Constitutionally Challenged,” or other similar designations.

    A similar audit in 2010 found 164 such instances, so the occurrence of such designations continues to drop.  Congress enacted to law to prevent taxpayers from being stigmatized even after they comply with IRS regulations, and to prevent future bias by IRS employees towards prior offenders.  The audit noted that

[t]he IRS has long disagreed with our determination that in order to comply with RRA 98 § 3707, IRS employees should not designate taxpayers as Illegal Tax Protesters or similar designations in case histories.

    The decrease in such occurrences, however,  indicates the IRS is attempting to comply, if somewhat reluctantly.


Note: A version of this article first appeared at The Weekly Standard.

Dept. of Transportation Audit of Stimulus Money Terminated Despite Estimated Improper Payments of $100M

    Despite an admission by the Department of Transportation (DOT) that the Federal-aid Highway Programs under the American Recovery and Reinvestment Act (ARRA) are "susceptible to significant improper payments," the DOT Inspector General has terminated an audit initiated in April "due to other higher priority work demands."  The original announcement of the audit of the ARRA programs (better known as the "stimulus") reported that DOT estimated improper payments of more than $100 million in 2012 alone [emphasis added]:

FHWA has funded approximately 13,000 State and local highway  infrastructure projects and has disbursed almost  $26 billion in ARRA funds.
The Improper Payments Information Act of 2002 makes Federal agencies accountable for preventing and detecting improper payments within their programs. The Improper Payment Elimination and Recovery Act of 2010 requires identification and estimation of improper payments. The Department of Transportation (DOT) has identified FHWA’s Federal-aid Highway Programs as susceptible to significant improper payments. In fiscal year 2012, DOT reported an estimate of $103.2 million  in improper payments in FHWA’s Federal-aid Highway Program.

    A report on another IG audit relating to the Federal Highway Administration and the ARRA was just issued on May 7, 2013 and found areas for improvement in DOT's oversight of the administration of program funds:

On May 7, 2013, we reported that FHWA inspections did not routinely verify whether States detected instances of noncompliance with some Federal requirements. For example, we projected that $125.6 million, or 12 percent, of ARRA progress payments made to contractors in three States were unsupported.

    The IG said that "all four recommendations" stemming from that audit were "resolved but open pending completion of planned actions" by DOT.

     The more recent audit, which began in April and was terminated this week, was intended to test DOT's internal controls to see if they were adequate to "prevent and detect improper payments" to ARRA grant recipients. The IG's termination letter stated that the audit may still take place at a later date.


Note: A version of this article first appeared at The Weekly Standard.